2007-04-24 11:13:15 PDT SAN JOSE -- The Securities and Exchange Commission today filed charges against two former senior Apple Inc. executives for the improper handling of stock options, one of whom said Apple Chief Executive Officer Steve Jobs was fully warned about the accounting implications related to one instance of backdating.

In a complaint filed in San Jose federal court, the SEC accused former general counsel Nancy Heinen of participating in a scheme to backdate stock options including some awarded to Jobs and altering company records to conceal the fraud at the Cupertino maker of iPods and Macintosh computers. Her lawyers say she will contest the charges.

San Francisco securities regulators also filed and, at the same time, settled charges against Apple's former chief financial officer, Fred Anderson, alleging that he should have noticed Heinen's attempts to backdate Apple options grants and taken steps to ensure that Apple's financial statements were correct.

He has agreed to repay option gains and civil penalties totaling about $3.5 million but made no admission of guilt and will not be barred from serving as an officer or director of public companies. In a written statement, Anderson's lawyer Jerome Roth said his client is "pleased to put the matter behind him."

According to the complaint, Apple granted 4.8 million options to six members of its executive team including Heinen and Anderson in February 2001. The SEC alleges that in order to avoid reporting a compensation charge, Heinen backdated the options to Jan. 17 when Apple's share price was substantially lower. Heinen also directed her staff to prepare documents falsely indicating that Apple's board had approved the executive team grant on Jan. 17. As a result, Apple failed to record nearly $19 million in compensation expenses.

Heinen and Anderson both received millions of dollars in unreported compensation as a result of the backdating, the SEC said.

In his statement, Roth said Anderson was told by Jobs in late January 2001 that Jobs had secured the agreement of the board of directors for the executive team grant on Jan. 2. Anderson claims he cautioned Jobs that the executive team grant would have to be priced based on the date of the actual board agreement or there would be an accounting charge. Anderson also advised Jobs that the board would have to confirm its prior approval in a "legally satisfactory method." Anderson's statement claimed Jobs told him that the board had given its prior approval so he concluded the grant was properly handled.

Apple spokesman Steve Dowling could not be immediately reached for comment. But Marc Fagel, associate regional director of the SEC in San Francisco, said Anderson should have realized the grant was not properly handled.

"He had an e-mail selecting the price and date with hindsight and (he knew) the board was signing minutes verifying the options being granted on the date that the board action was not taken," Fagel said. "He should have done more to make sure that the accounting was appropriate."

The SEC also alleges improprieties in connection with a December 2001 grant of 7.5 million options to Jobs that resulted in more than $20 million in unreported compensation expenses. The SEC says Heinen caused Apple to backdate the grant to Oct. 19, 2001 when Apple's share price was lower. Further, the SEC alleges she signed board minutes stating the board approved the grant to Jobs on that day at a special board meeting that never occurred.

The SEC is seeking civil penalties against Heinen, which would likely involve monetary fines, as well as sanctions barring her from serving as an officer or director of a public company. However, the SEC will not bring any action against Apple itself.

Heinen's lawyers have argued that she broke no laws and was not involved in any backdating at Apple. In a written statement released Tuesday, Berkeley attorney Miles Erlich said every action Heinen took was with the express understanding and approval of the Apple board.

The SEC disputed that claim.

"Her counsel has been out there talking about how she has done nothing wrong and that she didn't understand some key issues. That is not an argument that we accept," Fagel said. "We find it hard to believe that a well-trained general counsel of a public company can be creating board minutes for meetings that didn't occur, changing board minutes to conceal other actions she has taken and then argue that she is not doing anything wrong."